In a situation where one party reneges on a verbal agreement, potential responses range from viewing the situation as a lesson learned to taking legal action, depending on the subject, its relative importance and the validity of the agreement. Although a verbal agreement usually is not the preferred method of operating, an oral contract can be a valid and legally binding agreement in some situations.
Assess Your Options
Ask and answer three crucial questions -- preferably with advice from an attorney -- before deciding whether to walk away, resolve the situation though mediation or file a lawsuit. These are:
- Do you have a valid legal case?
- Would mediation be more effective than a lawsuit?
- Would you be able to collect on a judgment if you win?
With a verbal agreement, deciding whether you have a valid legal case often is the most difficult question to answer. For the remaining questions, mediation is more cost-effective and might be a better solution if you want to preserve the relationship. Finally, collecting on a money judgment may require even more legal actions.
Analyze the Subject of the Agreement
Determine whether the agreement falls under statutes of fraud and Uniform Commercial Code protections that require that five types of contracts be in writing to be enforceable in a court of law. These are:
- Real estate contracts
- Marriage contracts
- Contacts that involve a co-signor
- Purchase agreements for goods valued at $500 or more
- Agreements with terms that make it impossible to complete within one year
Lack of evidence that a valid contract exists is a common issue in enforcing a verbal agreement in a court of law. However, partial or substantial performance of the terms can provide the required evidence, even with an agreement that may appear voidable because it is not in writing.
As an example, assume you have an oral agreement to build a storage shed on your neighbor’s property in exchange for the cost of the materials and a $200 fee, and are halfway into construction when your neighbor reneges. A court of law may rule that your neighbor must return you to your pre-contract position -- reimburse you for the materials -- or may order that the remainder of the contract be performed according to its original terms.
If you rely on the promise made in a verbal agreement to your detriment, a court of law may consider the agreement legally binding. A common illustration involves statements made by an employer to an at-will employee -- one not protected by an explicit employment contract -- that can create an implied but legally valid contract. For example, in Toussaint v. Blue Cross & Blue Shield of Michigan (2009), a Michigan court ruled that verbal statements made to the plaintiff concerning job security constituted an implied employment contract in which the employer could terminate employment without just cause.
Read More: Do Binding Contracts Have to Be Notarized?
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